The offbeat personal finance blog for responsible people.

100 Words On: A Guaranteed Way to Preserve Your Wealth

Fiat-based paper currencies facilitate commerce by acting as a medium of exchange that’s far preferable to bartering. Unfortunately, governments that wish to spend beyond their means can — and do — print fiat with impunity, thereby leading to chronic monetary debasement that can wipe out savings and even disrupt societies. On the other hand, gold and silver pay no interest, but they have no counterparty risks either; that makes them trusted stores of value.

The bottom line:Responsible people never invest in physical gold and silver — they only buy it to preserve their wealth, and hedge against financial system uncertainty.

What?????? Sam. Fiat and gold are opposite sides of the same coin (no pun intended). Either you have faith in the US dollar (which you clearly do) — or you don’t. I used to have faith in the dollar. Now I don’t — which is why I buy precious metals now.

Gold is the ultimate hedge against monetary debasement and currency collapse. But now you’re claiming the opposite. Cuckoo. Precious metals are insurance — not an investment. The price is irrelevant.

As for your intellectually dishonest cherry-picked claim about 1980 … That’s when gold was clearly at the peak of a speculative frenzy. Gold is not in anything close to that now. In fact, the price has dropped more than 30% over the past two years. You also fail to recognize that there is the “price of gold” — and then there is the “gold price.” They are entirely different, Sam.

If the currency fails, the price you bought it at will be irrelevant because only then will the true value of gold be discovered (and it will be denominated in a brand new currency).

Clearly, you do not understand this. You are only capable of seeing precious metals as an investment; that is completely and dangerously wrong — albeit logical to those like yourself who are still big proponents of our fiat currency even though that currency is being debased at an alarming rate now by a government that continues to spend far more than it can reasonably afford.

Your claim that gold is well priced insurance at any price is only valid if there is a 100% chance of the exact economic collapse scenario you lay out, or alternatively a time horizon of maybe 100 years if you buy on a peak. I say buying gold now may not preserve your purchasing power over the short term – and that short term could very well last 33 years.

**sigh** You still don’t get it, Sam. Let me see if I can make this a bit clearer for you. Those who buy gold and silver should be buying those precious metals only if they intend to hold on to them until:

a) some point in time after the dollar is destroyed.
b) the day they die, at which time the gold and silver is passed on to their heirs.

Under that scenario, the only people who are buying gold and silver are those who believe the risk of a dollar implosion is high. But it certainly doesn’t have to be a 100% chance; that’s not how insurance works, Sam. Do you only buy car insurance if you believe you have a 100% chance of getting into an accident, or flood insurance if you only believe there is 100% chance you’ll be struck by a catastrophic flood? Of course not. What if you believed there was a 99.3% chance? Wouldn’t it be prudent to buy then? How about a 85.6% chance? Are those odds still enough to convince you to buy? Everybody has a different tolerance, Sam.

Here’s the thing: Your 100% rule is only valid if you treat gold like an investment and intend on selling it before you kick the bucket for US federal reserve notes.

I’d be more interested in storing barter goods if the us dollar collapses. Gold is a currency not much different from others. Money is only useful if someone is selling. That said I’m not hoarding much at the moment… although I should shift more of my emergency fund into physical goods and nonpearishable food.

Yes, Pen. Before anybody starts throwing too much into gold or silver, they should have adequate food stores in place.

I am not too concerned with stocking up a lot of things to barter with — but that is based upon my belief that a US dollar collapse will only cause supply chain disruptions for no more than six months. I fully expect a new currency — either at the state or national level — will be established soon after any collapse and I also expect that commerce will get back to a relative state of normalcy within six months. I believe that because it will be in everyone’s best interest to fix things as quickly as possible — especially the powers that be.

If you use the whacko’s preferred inflation statistic (shadowstats_dot_com 1980 calculation that Len seems to like), you’ll find that you could buy over $9000 worth of stuff in today’s dollars in 1980 vs. a measly ~$1350 today. Does that sound like “preservation of value” to anyone? There are plenty of periods where gold has bought drastically more or less stuff.

The point is, how can something so incredibly volatile in terms of what you can buy with it credibly be called a “preserver of wealth”. Seems to me it’s only that if all you ever plan to trade it for is gold.

Yep. And all your readers should be aware that they might have to wait 100 years to see that, because there are 33 year periods where it doesn’t do that. They should also be aware, that in the near future, gold-as-insurance may be cheaper than today. None of this is clear from your post.

“They should also be aware, that in the near future, gold-as-insurance may be cheaper than today.”

Very prescient, Sam. It may also be more expensive. Fortunately, it doesn’t matter. Those who try to time the market are playing a fool’s game.

“They might have to wait 100 years to see that, because there are 33 year periods where it doesn’t do that.”

I’m not sure what you mean by that statement — but I will give you this: People often buy insurance that they never use. That doesn’t mean it was a bad buy. That being said, I am almost certain that unless there is a dramatic and rapid paradigm shift in the fiscal policies of our government politicians and the world’s central banks, I will be cashing in my insurance sometime before the next 33 years is over.

“If you fail to learn from history you are doomed to repeat it.”
“There is no history of something happening until it does.”

Len touches on two things that happened during the Great Depression. First, banks closed and there was a shortage of physical currency. In place of federal paper currency, local governments (and some businesses) issued scrip in the form of paper, cardboard, wood, metal, etc. as a means for trade and the economy to continue.

Second, in 1933 the federal government confiscated gold money from its citizens and replaced it with the paper Reserve Notes still used today. It was illegal for individuals to own gold. I believe the only exceptions were coin collectors (and I think there was a limited $ value), dental gold and jewelry.

I read that less than 25% of the private American citizens who owned gold in 1933 actually surrendered it to the government. Everyone else ignored the order and held on to their gold.

And you are correct: The government did not go door-to-door, or even check safe deposit drawers bank-to-bank. Any confiscation was achieved through voluntary compliance with FDR’s order. (There’s a good reason for that: The government knew it eventually would have had to resort to force if they wanted the rest of it, and that was a political non-starter — as it would be today.)

Moral of the story: If there ever is a law passed demanding you turn in your precious metals, don’t do it.

In any case, I think confiscation will never happen. The amount of gold held in private hands isn’t worth the government’s time to hunt down. It will be a lot easier for them to simply confiscate money from everyone’s 401k funds (which I believe is currently $5 trillion).

Gold is akin then to those 12 mos of MREs they sell at Costco when markets go wacko. Afterwards they sell it online. I bought a gas generator once. But buy gold, really? First I’d need to load up on shotguns and shells to protect my rare alternative store of value from getting jacked. Alternatively I could just transform into a gun dealer when kingdom comes and establish ammo as the new fiat currency. Gold would only get used between arms dealers to transfer large stores of value.

You are right about one thing: Gold will have its maximum value in a functioning free society. If, as you suggest, the world ends up in some kind of permanent apocalyptic “Mad Max” scenario after the fall of the dollar — then food, water, guns, and ammunition will be much more valuable than gold.

As I have written before, I do not expect that to happen. I expect a relatively quick — but painful — transition to a new currency. The time to cash in gold will be after the new currency is established.

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